THE IDEOLOGICAL COMPONENT OF JUDGING IN THE TAXATION CONTEXTPublished in 2006. In the Washington University Law Review 84: 1797-1821.

(Revised version of a paper presented at Washington University School of Law's conference on Regulating Business: Beyond Doctrine, 2006.)

Nancy Staudt
Lee Epstein
Peter Wiedenbeck

Introduction

One of the most enduring divides that scholars have uncovered between decision making in different areas of the law is the role of politics, whether in the form of partisanship or ideology. Study after study confirms a strong correlation between judges’ political preferences and their behavior in civil rights/liberties-type cases, but researchers have only rarely identified an association between politics and decisions in economics cases. Some argue that the apolitical nature of decision making in the business and finance contexts is due to the fact that judges simply do not have political preferences in these areas, or if they do, other factors work to neutralize them.

In our view, the existing literature highlights a curious puzzle: Why do judges appear to stand above politics in the areas of the law that are rife with conflict and controversy in the other two branches of government? Lawmaking in the context of taxation, bankruptcy, securities, antitrust, corporate law, to name just a few examples, is highly political in both the legislative and executive branches, as many empirical scholars have documented. For this reason, we seriously question the claim that judges are unique in that they have no political or ideological preferences when it comes to business and finance. Our conjecture is that the null findings in the literature are due to the technical difficulties associated with uncovering politics in large-N studies addressing economics decision-making rather than to a lack of judicial interest in these issues. But this is precisely the question we investigate here.

This essay is organized as follows. We first briefly discuss three measures of individual preferences that scholars have used to assess the role of politics in the judicial decision-making environment. Irrespective of the measure adopted, scholars reach the same conclusion: Ideology (or partisanship) explains quite a bit about decision making in civil rights and liberties cases, but very little about business and finance. We then use our own dataset to investigate this question further. Specifically, we examine every U.S. Supreme Court case decided between 1940 and 2005 that involves an interpretation of the Internal Revenue Code. We first approach the problem using the same measure of politics that researchers have adopted heretofore in the study of judicial decision-making. We then modify this approach by using slightly more refined coding protocols to identify “liberal” and conservative” decisions. Our study produces interesting findings, in part, because they are so mixed. When we aggregate the cases, we find that neither liberal nor conservative justices systematically vote in favor of either the taxpayer or the government. When we slice the data to investigate this finding further, we again find a lack of association between politics and outcomes in individual income tax cases. When we examine only the corporate income tax cases, however, we obtain very different results. Our study suggests that liberal justices are far more likely to vote with the government while conservative justices systematically vote with corporate taxpayers in the Supreme Court. This finding is robust across many different models and suggests, at least in these circumstances, that the justices do have political preferences regarding the outcomes in economic controversies. We think our findings have implications for empirical studies of judicial decision-making in many areas and discuss these possibilities in the last section of the paper.

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